American Association of Individual Investors (AAII) Review – The Numbers Behind The Non-Profit

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I’ve been getting letters from the American Association of Individual Investors (AAII) for years now, and another one arrived yesterday. Their stated goal is to “assist individuals in becoming effective managers of their own assets through programs of education, information and research.” In big print on the front of the envelope, they declare that they are a 501(c)(3) non-profit “education” organization.

But after reading their pitch about investing in little-known small-cap stocks and their claims of earning 6% a year more than the averages, I just got the feeling that this was another stock tip newsletter. Keep in mind that if someone could beat the market by just 2% a year consistently, they’d be very rich folks.

From previous research on charities, I know that a lot of “non-profits” have top executives making a lot of money. On the extreme end, there are shell charities that are basically really good-paying jobs that hide behind helping veterans or orphans. Of course, there are many situations where an executive can justify their salary, especially if the organization’s administrative and salary costs are a small percentage of donations and most revenue goes directly into the community.

Usually non-profits have to file an IRS Form 990 that is similar to an annual report, and this document is legally required to be open for inspection by the public. Let’s take a look at the 2009 AAII Form 990 from Guidestar.org.

In 2009, AAII declared revenue of $5.8 million, mostly from annual membership dues and subscriptions to their stock newsletters. That $29 a year adds up! Out of that, the salaries of the employees took up $3.1 million, over 50% of the revenue. The top 5 employees get paid a total of over $1.3 million a year. The top two officers both paid themselves approximately $450,000 each in 2009. Here are the exact numbers from a snippet:

$1.1 million was spent on marketing costs of printing and mailing all those letters, and the organization actually lost $1.6 million for the year. I wish I could start a non-profit that actually didn’t make any profit, but yet still paid me and my buddy both nearly $500k a year!

Finally, let’s take a look at their performance claims. According to the site HenryWirth.com, AAII appears to use the shady tactic of only releasing performance numbers after they know they beat their desired benchmarks. (If it doesn’t, it’s swept under the rug.) After the Hulbert Financial Digest monitored their true performance based on public, replicable stock picks, the newsletter was found to have subpar returns over the last 8 years. It lagged the Wilshire 5000 index by over 2% a year, and lagged the Vanguard Small Cap Index by over 7% a year.

I know there are some happy AAII members out there. Teaching individuals to invest independently seems like a good idea, although promoting unrealistic returns is sketchy in my book. Mostly, I find the fact that they are using non-profit status to increase their own wealth very irksome. I think AAII should be run as a for-profit business, and then they can charge whatever they want and pay themselves whatever they want. If you are happy with how this non-profit enjoys their tax-exempt status and how they spend most of their revenue on themselves, then by all means keep on sending in your money. I’ll pass.

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I feel like there has been a consistent erosion of the intent of non-profit status over the last decade or two. Schemes like this are not at all uncommon. Think of the fancy offices and high salaries of the Girl Scouts national office, the congressional hearings on military charities that revealed big salaries (including news letter writing wives being paid six-figures) and little actual aid, lobbying groups with plush offices and salaries and more. Battelle is one of the biggest defense/federal contractors in the US but is a not for profit.

Not for profit is just a business organization strategy where they make any profits disappear by the end of the year. Not to be confused with a true charity.

I hate these kinds of newsletters! or worse email campaigns. If you could beat the market consistently you wouldn’t be trying to sell me your $29 subscription! You would be running a hedge fund bringing in $5mil instead of 500K!

They may excuse their salaries by comparing to what they could make in private industry.

I’m not familiar with AAII so I don’t know if they’re legitimately educating their uses and actually have any kind of nobile goals as a charity.

Seems like a business pretending to be a charity more than not.

On the other hand I don’t know how much it really matters. The executives still have to pay regular income taxes on their incomes. And it seems like they’re dumping all their profit into their salaries. Basically they’re using nonprofit status to avoid corporate taxes but then giving themselves all the money and then paying income taxes on it. So it doesn’t seem like they’re avoiding taxes. I don’t know if being a non profit is being used to fool their members into thinking they’re more legitimate or that they have more nobile goals. But maybe they do honestly have those legitimate educational goals but are just dipping into the till a little too much?

I recently subscribed for a year to this AAII. I’m not sure it’s really any more value than a general google search for many investing topics. They sure like to hype conferences in far flung places away from home that I’m sure do nothing more than boost tourism.

Disappointed for sure. I don’t think the subscription price was horrible at the time of signup. Have been rethinking that since.

Great post… As I market to non-profits, it is always interesting to check out the 990 PFs and I always take a glance to see what people are pulling in.

As disheartening as your post is, be aware that there are many leaders of non-profits (especially on the investment side) who are making far less than they could in the private sector. It’s always nice to visit a major foundation and realize their CIOs office is a cubicle. Many of them take their philanthropic mission very seriously… Of course, many don’t.

Jonathan thanks for the great tip on GuideStar. I used to audit non-profits and i never knew this platform like this (to check on non-profit returns) existed.
As for the personnel expenses as % of revenue, i don’t see 54% as extravagant for a service entity. That’s not to say that their salaries reflect the work they are putting into the organization.

Right or wrong, there are many people who begin non-profits as a way of running “their own business” and many of these founders probably look at salary as a way to get guaranteed returns on “their business”, since the losses don’t flow through to the individual’s bottom line. Someone might create a board (appointing family/friends), have the board set a high salary for the founding executives (including retirement) and now the founders get paid while running a losing business. Technically a board is supposed to set the executive pay but when the board is made up of the CEO and the CEO’s friends & family, you can bet the executive compensation won’t be less than reasonable.

So your comment “I wish I could start a non-profit…” is probably exactly what the founders of AAII thought when they started.

Careful Phoenix… the IRS is very concerned about how conflicts of interest are handled and they do look into cases where the CEO sits on a board that determines their own salary. That’s why the highest paid exec’s salaries get reported directly on the Form 990. They do review the tax returns and if something is out of whack, they look into it. You cannot shelter money from being taxed by the IRS without a legit cause. Estates and politics are the areas they watch the most but they do keep an eye on the others.

And for those that are confused, non-profit does NOT mean a zero bank balance at the end of the year. It does mean that any positive cash flow is not distributed to shareholders, partners, or otherwise. Salaries are separate, which is why they are reported and are public knowledge, so if they get disproportionate, they are audited.

Scott, i agree completely and i was not intending for my comments as advice or recommendation of any sort. I actually believe i feel the same way Jonathan does about what AAII is doing.

The motivation behind starting a non-profit should come from the desire to help others, and there are plenty well-paid employees at non-profits that are providing wonderful services. However, there are also many self-serving persons who might first think, “I wish I could start a non-profit that actually didn’t make any profit, but yet still paid me and my buddy both nearly $500k a year” and they end up carrying out their wishes. I wouldn’t be surprised at all if AAII was started by somewhat unscrupulous investment bankers determined to pay themselves handsomely while cutting their risk of loss on the business.

It makes me wonder, what is the difference between these guys and Madoff? They both gives false figures and trick people to sign up and fall into their investment trap. I know its tricking the system to get away with it but why not SEC consider this as one type of SCAM as well. Anytime some one promises things which are unattainable and make money from themself, don’t it suppose to considered as SCAM artist.

As an AAII member I think looking at the performance returns is an illogical metric. AAII does not recommend stocks to buy as part of their membership. They offer a service that does that, but it is separate from the AAII membership and it is rather expensive. I paid a one-time fee for a lifetime AAII membership many years ago, so I am not paying any monthly fee for their newsletters, and I am not getting any stock picks. The Hulbert newsletter was likely only analyzing the success of that separate stock picking service.

When I was starting out investing in individual stocks, I found many of their articles helpful. One thing I like is that if an author writes a book describing a stock picking strategy, they analyze what the author recommends, identify stocks that meet the criteria, update that list every month, and track the performance of that stock picking strategy. You won’t find that level of strategy analysis on any free Web site. Another thing I like about AAII is that they have a good yearly tax guide that I still use every year to identify all the various limits and tax changes. They also review investing/accounting/tax software and investing Web sites.

Considering I’m not paying any monthly fee, I am not too concerned with how much the executives are making. I would rather get a financial education from someone pulling in $1,000,000 per year than someone struggling to put food on their table. Most people involved in the field of finance are at the top of the pay scale, especially ones with 20+ years of experience on Wall Street. High pay is the primary reason to be in that field. I would be more upset if the president of a company that provides food to staving orphans was pocketing $1M per year.

Based on the comments, some people seem to be getting the impression that AAII is some stock recommendation newsletter. It is an investment education newsletter. It used to be a print-only newsletter. Now they have everything online, so I unsubscribed from their printed version.

Generally concur with Mike C (above). I received the mailings for several years before I finally decided on a one-year subscription. The information in the monthly newsletter is useful — especially for those interested in investing in stocks.

Over the past decades, I’ve shifted to mutual funds, and while AAII covers funds to a limited degree, their focus was clearly on varying collections or sets of stocks.

I let the subscription expire after the first year — not because of the quality of information but because it was far more than I needed. For anyone interested in learning about investing, it’s a pretty good place to look, and for a $29 subscription, you might find that it meets your needs.

Until I read this post, it had not registered with me that AAII was a non-profit (even though as you mention, it’s on the envelope), but I don’t think that it would have affected my decision to subscribe and to ultimately not renew.

I received the promotional envelope yesterday. My dictum is: If it is too good to be true, it, probably, is not. I am not surprised by the contents in the blog. In America, the principles of capitalist, free market philosophy has been abused enormously. The power brokers in Washington D.C. are diluting the controls progressively. The tragedy of unrestrained capitalism comes in evidence again and again. How is AAII able to hold on to a non-profit status while rewarding its top honchos such monstrous compensation? Bulk of the population is struggling to make ends meet and a small percentage of the Nation is cheating the rest to fill its ever enlarging pockets. What happened to ethics and morality in the USA?

I’m a member of aaii,I have learned a lot about investing and have picked up some stocks from their screens and have done well. For the price of $29.00 I think it was money well spent. There is a lot of information you can get on their web site. I don’t really care what the pay scale is for them. What I have learned from them has raised my AGI 20% since I’ve been a member

Thanks Manny, my thinking exactly and I’m to have read your input. I’m betting the information I learn for a $29 subscription will be more than worth it. I’m not a novice investor but definitely no pro and I need input for assisting me in making my retirement portfolios grow. I have been not too successful finding new gainful employment after my retirement so must make the best use of my IRAs and holdings to carry me in the manner I’ve become accustomed to. ALL education from any source costs money….our biggest examples are colleges which do not strive to make a profit however their administrators make huge salaries. Its a tradeoff I guess and for $29 a year, I’m not sure its not a fair one.

I’m also a member of AAII. Their monthly journal sometimes contains useful articles, but my main interest in AAII is on account of the stock database they sell ($200 per year) with their software Stock Investor Pro. The software itself is lousy and outdated (it is written in Foxpro, which is no longer supported by Microsoft, and exports to Excel 2003 file format!). I only use it to download the data into Excel where I ply it. The dataset has hundreds of data points and metrics for about 7000 stocks. The data is updated only weekly (hence the low price), but that is good enough for long term investors. The problem with AAII is that they do not spend on improving their software and its data processing. The dataset originates with Thomson Reuters, so it comes from a reliable source, but it frequently suffers from errors and typos. When I recently used their lethargic forums to point out that their industry medians were miscalculated, AAII just deleted my post. I could not believe they deleted the post, so I re-posted, and they deleted it again. Instead of thanking me for correcting a serious systematic error that would have harmed their investors, they just deleted the post. That is very dishonest and it fits with the pattern described in the article and comments above.

I’m sure glad I did a search for reviews on this. $450.000.00 would make me a very happy man.. I’d forget the stock market. I’m retiring on a helluva lot less, calling this group nonprofit is a joke. I think it’s an illegal joke….

I recently became a member of this organization. Quickly realized that the low cost of annual membership is just a bait to sell more of their products to lead you chasing a mirage of learning how to invest. Most articles prompt you to buy their stock screening tool “stock investor pro”. I am still looking to see if anywhere they teach you the actual basics of investing. How to evaluate the true value of a company. There is a lot of blah blah.

Thanks for this post. I just got a letter from them and had never heard of them before. My # 1 rule for increasing my net worth is not wasting money. So now I’m worth $29 more. It’s better invested in IBD and Motley Fool.

Its also good to know that they pitch the $29 deal as a “member drive” discount. I’m sure their “member drive” happens all year every year.

Wow! Great post. So quickly I was able to determine from your research, that once they shave off the money as salary at the top, they can so easily pose as innocent non-profit organization, running at a loss. Plus the devious misrepresentation of returns on investment, is highly irregular. I agree with everything. Especially that they should run as a for-profit business. At least it will be more honest.

I am a member of aaii and have been for severeal years. yes most of their stock screens beat their averages their is a lot of buying and selling.you as in investor have to decide whitch stocks on a paticular screen to buy
also there are articles on their website on how to value a stock.aaii in for educational purposes. some screens can double or triple your return but you still have to do due diligance

Before the days of the internet, in the early 1990’s, I used to read the AAII Journal in the San Francisco Pulbic Library. The library paid for the subscription. I read a lot of useful information and found the formulas to calculate YTD returns useful. which I’ve been using ever since in my spreadsheets. However, I was skeptical about joining based on the high price for this “non-profit”. I called the phone number to inquire and requested a copy of their annual report. They asserted that they were a non-profit in accordance with the IRS rules, but absolutely refused to disclose their revenues and expenses. Just because they were “non-profit”, doesn’t mean individuals aren’t making money. Thank you for sharing this public information so that now, 23 years later, I can see for myself what I’ve always suspected.

Glad I saw this despite the age…I’ve been wanting to rejoin this group and was thinking of even splurging for the 4 year $99 deal with “internet investing”! I remember seeing a lot of good information when I was in it before but most was over my head. Now as I am really wanting to learn enough to did into the market, I was trying to figure out what would actually be useful from them…just wasn’t seeing it in their letters. I see Motif Investing has several motifs set up with their portfolios…all losing money and all below the market! Thanks everyone for setting me straight. Something is just not right with the info these people dish out.

I poorly researched and missing key information. I was a past AAII member that was thinking about renewing and wanted to see what others thought of the service. My past experience mimics that by Mike C said above.

The discussion about the non-profit status and executive salaries was new to me and useful, but there was no context so I don’t know if this is actually shady. The NFL is also a non-profit and the top executive makes $30 million.

The part I found most confusing was on the Hulbert Report discussion. As a past member I didn’t know what the author was talking about. Was this portfolio from their stock screens? Model portfolios? In general AAII has financial articles that can be informative and they have stock screens based off of specific strategies to identify companies that meet that screen’s criteria.

Going to the HenryWirth.com website it was clear they were talking about a different service than the AAII journal called AAII Stock SuperStars Report. This is some other service (~$150/yr) where they specify which stocks to pick for people who don’t want to use the information in the Journal to do their own stock picking. Apparently the returns of 6.1% from 2004 to 2014 were middle of the pack (#58 of 114) for investment newsletters, but this service has little to do with the $29/yr you pay for the journal.

I too keep receiving promo letters from AAII. Whether they are for, or non profit is a legal issue that the government must address. Other than that, I am more interested in getting good recommendations that would grow my investments. Years ago I tried them, and wan’t impressed. There are other newsletter out there that have done much better, alas they are never always right. If I only count the big winners, everyone has a few…

Breaking news: according to an “Urgent Message” emailed this morning from the AAII President, AAII lifetime membership is jumping from $290 to $490 in four days (6/12/16). Looks like the on-line access only version, hardcopy mailing would be more. If they can convert 30,000 of their annual subscribers by this weekend, it’s like a $10M liquidity event, at the expense of future revenue. Are they buying new servers, hiring more analysts, giving themselves bonuses, or what? I’ve been an on-and-off subscriber since 1993, and will probably get sucked in. Maybe a better deal than 10 shares of General Electric.

Thank you for the opinions. I have found the major brokerage houses have “robot” advisor portfolios that I will utilize soon. I have subscribed for years, to Kiplinger’s, a readable financial magazine, written at the level of a non-financial person. This is great for me because I pick it up at day’s end.
I am not highly interested in financial newsletters.

The thing you have to look at is cost vs. Value. I don’t trust any financial article that promises to beat the market. Even Barrons I read more for entertainment. The aaii jounal is decent and may be worth the cost of 29 bucks a year. That’s all. Just evaluate on what you want. If you’re a nerd like me, you’ll probably enjoy the journal and feel you are getting your money’s worth. Just don’t expect it to make you money over the indexes. But you shouldn’t expect that of any of these publications.

If you try googling anything to do with finance on the web, you get an incredible amount of shady chatter–all about getting you to hand out money. If you want to screen stocks using on-line databases it will cost you $100 a month or more. AAII offers open discussion on stock selection for $30 a year and a relatively massive database to scan for some $250 a year. They also offer somewhat conservative picks on their “Model Portfolio” and “Shadow Stock Portfolio” which have reasonable records for people who can’t be bothered to choose their own stocks. The company is not a scam. Cloonan and Markese are arguably making twice what they are worth (as are most investment advisors) but the customer is getting good value.

I joined, and opted out of all email communications. They kept sending me emails regarding seminars. I brought this to their attention. Their customer service “fixed” it. A month later, i began receiving their spam again so i gave them a choice: Cancel my 5 year membership and prorate a refund, or stop with the solicitations. They cancelled my membership, refunding ~ $60. This tells me that they value their spam over their members. Sad. I will never look at AAII the same way again.

Thank you for researching this topic and posting about it. I get AAII emails and you have confirmed/voiced my skepticisms.

In today’s email, AAII claims their model portfolio outperformed the S&P500 by almost double for the 10-year period ending 12/31/17 (232.4% vs. 123.4%). When I research market returns, I find that small cap indexes outperformed the S&P 500 by about 20% over the last 10 years. Therefore, if their model portfolio did as well as they claim, that’s an amazing accomplishment! It makes me wonder…are they calculating the return for the portfolio they recommended 10 years ago? Or are they using a model portfolio they selected today using 20/20 hindsight?

I too am an AAII member. I think $29.00 is a fair price to pay for what is essentially a magazine subscription with articles about investing and a website with lots of additional information and archives. Yes they market additional services, who, including this site, doesn’t. I went to their annual conference in Las Vegas last year. The featured speaker Mark Hulbert made a great 90 minute presentation about his life work on investment advisors/newsletters. Not sure that totally covered the price of admission, but I don’t know where else I would have gotten access to that presentation by the man himself which was very good. There were also several other talented and knowledgeable presenters on various investment topics that i also considered educational.

Of course there are scams in non profit, but no large organization, profit, non profit, or government can succeed without talented leadership to achieve its goals and purpose. Consequently, most organizations must pay their top talent well or lose them to organizations that will.

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